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Unit 11: Appointment, Right, Duties and Liabilities of an Auditor

in his report. This is to ensure that the shareholders are made aware of the fact and such awareness Notes
may give critical clues to them and indicate that all is not well with the Company. The power to
ask for information includes the exercise of such powers over the officers of the company and
includes the Directors and Managing Directors. This power is not extinguished by the winding
up of the Company. Where a Company is under Liquidation, the courts can call upon the
directors to appear before the Auditors to submit explanations to the questions raised by them.
This is based on the logic that while directors may cease to enjoy powers, the obligations and
liabilities incurred by them in the time when they were directors are not extinguished with the
passing of the order of winding up. This was held in Bhawnagar Vegetable Products Ltd., In Re.
Under English law, an officer of the company who makes to an auditor (orally or in writing) a
misleading statement which conveys, or purports to convey, any information or explanation
which the auditor requires, or is entitled to in his capacity as auditor is guilty of a statutory
offence and may be liable to fine or imprisonment or both. For the officer to be guilty of an
offence, the statement must be misleading, false or deceptive in a material particular and made
knowingly or recklessly.

Notes The power to ask for information includes the exercise of such powers over the
officers of the company and includes the Directors and Managing Directors.

11.8.2 Right to have Access to the Books of Accounts

Section 227 confers on the auditors the right of access to the books of accounts of the company at
all times for the performance of his duties. The auditor’s powers cannot be limited or abridged
in anyway. A Company Articles may not limit the auditor’s statutory right to information. In
Newton v. Birmingham Small Arms the Court held that,” The auditor has the right to access to books
of accounts of a company. Any provision in the company’s articles precluding auditors from obtaining or
availing themselves of the information they are entitled to by statute is void. They must have free access to
all the material necessary for their report. A resolution limiting the powers of the auditor or a provision to
this effect in the effect in the articles will be void.” The auditor is also entitled to request access to other
documents necessary for audit. The books of accounts of the company may be kept in the
headquarters of the Company or elsewhere. The right of access to the books can be enforced by
mandatory injunction but not where litigation is pending between the company and the auditors.
This right is inclusive of the right to see vouchers also. The term vouchers includes all documents,
correspondence, agreements and evidence which support any transaction or data disclosed in
the financial statements whether directly or indirectly. The term book also includes the financial,
statutory and statistical books including cost records. The auditor can also examine the books
which record quantities of production, stock, sales, etc. The inspection is inclusive of the minutes
of the general meetings and the Directors meetings. It has been held as early as 1906, in England
that any regulation precluding the Auditors from availing all the information required by them
is invalid. Such a rule is also valid in India and is essential to protect the sanctity of the Auditors
Report. The term “at all times” enables the auditor to check the records without waiting for
financial year to end, but it means the examination only during office business hours. The
auditor can visit any branch office at any time for his purposes. There is a limitation to this
power and that is with regard to the foreign branches of Banking Company, under section 228(2)
of the Companies Act, 1956.
!

Caution The right of access to the books can be enforced by mandatory injunction but not
where litigation is pending between the company and the auditors.

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